IBM, Oracle to up sales as US law pushes computer tracking
NEW YORK: Changes to U.S. food-safety rules may generate sales for International Business Machines Corp., Oracle Corp. and other companies that can provide systems to track outbreaks of food-borne illness.
The U.S. House of Representatives on Dec. 21 and the Senate last month passed a bill instructing the U.S. Food and Drug Administration to establish over the next two years how the tracking is to be accomplished. The study may lead to FDA requirements that farms and manufacturers buy computer systems to monitor and track shipments, according to agriculture trade groups that have started work on tracking technology.
The bill, which awaits President Barack Obama's signature, may lead to hundreds of millions of dollars in annual sales for companies that produce the labels and scanning devices to enable tracking systems, said Ray Connelly, general manager of closely held Truetrac, a developer of agricultural product-tracking software in Salinas, California.
"That's the free market," said Larry Sanders, a professor at Oklahoma State University's Department of Agricultural Economics in Stillwater, Oklahoma. "The consumer is being heard because of the problems we have been having because of E. coli and salmonella."
An estimated 76 million people contract food-borne illnesses in the U.S. each year, with 325,000 hospitalizations and 5,000 deaths, according to the Centers for Disease Control and Prevention in Atlanta. Those illnesses cost the U.S. economy $152 billion a year in health care and related expenses, a March report by Georgetown University's Produce Safety Project in Washington concluded.
Under a tracking system, farmers would scan individual cases of produce, keeping records of where they are shipped and perhaps feeding the information to a third party that will manage the data. If a recall is ordered by the FDA, the records would be quickly disseminated to trace the origin of the recalled produce and help farms and factories address the cause of the problem.
Larger farms that ship thousands of crates daily would pay thousands of dollars a year to ensure their food can be traced, Truetrac's Connelly said. With more than a billion cases of food shipped annually, the penny to 10 cents paid for each label might add up to more than $100 million, he said.
New technology may not be needed. IBM already offers similar systems to track pharmaceutical products. In addition, the food industry has been adopting tracking technology on its own, said Kathy Means, vice president of government relations for the Newark, Delaware-based Produce Marketing Association, which represents 3,000 producegrowing and -distribution companies.
The legislation would require most food producers to develop hazard prevention plans and would give the FDA access to those records when requested. Some local food producers with annual sales under $500,000 would be exempt from that rule under language written into the bill by Democratic Senator Jon Tester of Montana, an organic farmer.
The tracking system might mirror one being established in California for pharmaceuticals, said Paul Chang, a food safety expert for Armonk, New Yorkbased IBM. By 2017, all drugs sold in California will need to be traceable, said Virginia Harold, the executive officer of the state's Board of Pharmacy.
"It is expensive, but so is it for a consumer who walks into a pharmacy and ends up getting a counterfeit product," said Harold. She declined to estimate the technology's costs.
Those costs would decline as tracing is more widely adopted, said IBM's Chang, who has met with FDA representatives to discuss the food safety bill's requirements. "Once you develop a process, it can be copied and pasted," he said.
Oracle, based in Redwood City, California, has used existing technology for pharmaceuticals, though not for food tracking, according to information on the company's website. Oracle spokesman Deborah Hellinger declined to comment on the company's food safety opportunities.
With individual farms and manufacturers adopting such technology already, the industry "is almost certain" to be in compliance with the rules by the time the FDA proposes them in two years, said Victoria Salin, a professor in Texas A&M University's department of agricultural economics in College Station, Texas. "The only difficulty will be if the federal standards are different."
In California, 99 percent of farmers and handlers have committed to sell products that comply with voluntary food safety practices, including records of where produce was grown and where it was shipped. California growers of leafy green vegetables such as spinach, who also agreed to extensive water testing and environmental assessments, say the effort more than doubled their food safety costs to $54.63 an acre, according to a September 2009 report from the Small Farm Program of the University of California at Davis. The study doesn't break out how much went directly to the tracing technology costs.
Under a 2007 agreement, California farmers keep track of where produce is shipped and can disclose that information within 24 hours if it's needed, Salin said.
Farmers view the food safety technology they have so far deployed as the cost of doing business in an evolving marketplace, said Salin. The initial investment, she said, pales compared with the cost of business lost when food-borne illnesses diminish consumer demand for produce from farms far removed from the outbreak. While farmers support the ability to put out a safer product, there are concerns of excess government control as the details are sorted out, said Ray Bjorklund, senior vice president of FedSources, a Washington-based consulting firm. -Bloomberg